Reverse Mortgage Credit Approval
There are specific guidelines when mortgagee’s (lenders) consider persons seeking a reverse mortgage (the mortgagor or, in most cases, you). The following are the guides and circumstances for evaluating what is considered to be satisfactory credit in order to be approved.
The mortgagee may consider the mortgagor to have satisfactory credit if:
- The mortgagor has made all housing and installment debt payments on-time for the previous 12 months and no more than two 30-day late mortgage payments or installment payments in the previous 24 months; and
- The mortgagor has no major derogatory credit on revolving accounts in the previous 12 months.
Major derogatory credit on revolving accounts shall include any payments made more than 90 Days after the due date, or three or more payments more than 60 Days after the due date.
Credit Requiring Additional Analysis
If a mortgagor’s credit history does not reflect satisfactory credit as stated above, the mortgagor’s payment history requires additional analysis.
The mortgagee must analyze the mortgagor’s delinquent accounts to determine whether late payments were based on a disregard for financial obligations, an inability to manage debt, or Extenuating Circumstances (See Section 4.1). The mortgagee must document this analysis in the mortgage file. Any explanation or documentation of delinquent accounts must be consistent with other information in the file.
Where the mortgagor has not demonstrated the willingness to meet his or her financial obligations as stated above and no Extenuating Circumstances can be documented, the mortgagee must at a minimum require a Fully Funded Life Expectancy Set-Aside (LESA) (See Sections 5.4 and 5.9).
Even where a Fully Funded LESA is required mortgagees must still determine if the mortgagor’s credit history provides reasonable assurance that the mortgagor can effectively manage financial obligations even if real estate taxes and insurance are paid for directly by the mortgagee through the LESA.